Thames Water: crisis averted for now, but still work to do

Concerns about Thames Water's financial resilience and shareholder appetite to invest extra cash had forced the government to consider a nationalisation plan, and company bosses to go before parliament to explain the situation. Appearing before a parliamentary committee convened on Wednesday to quiz Thames Water chiefs, regulator Ofwat and ministers about the crisis, Ofwat CEO David Black defended the privatised model, saying it had led to 190 billion pounds ($245.2 billion) of investment over three decades.

Britain's Thames Water is on a more stable financial footing after investors this week pledged a huge cash injection to help manage a debt and environmental crisis, but big improvements are still needed, the regulator said on Wednesday. Concerns about Thames Water's financial resilience and shareholder appetite to invest extra cash had forced the government to consider a nationalisation plan, and company bosses to go before parliament to explain the situation.

Appearing before a parliamentary committee convened on Wednesday to quiz Thames Water chiefs, regulator Ofwat and ministers about the crisis, Ofwat CEO David Black defended the privatised model, saying it had led to 190 billion pounds ($245.2 billion) of investment over three decades. However, there was more work to do to cope with the challenges of climate change and population growth, he said. "We are seeing signs of change in the water sector, but much more change is needed," he said.

Britain privatised its water industry in 1989, but near constant sewage releases dirtying rivers and beaches have shattered public confidence in the sector, and polls show a majority of people now support nationalisation. Large dividend payouts to shareholders - including 2.7 billion pounds Thames paid out to investors from 2006 to 2017 while its debt pile tripled to almost 11 billion pounds - have also stoked public anger.

Ofwat chair Iain Coucher told the committee Thames Water's deep-rooted issues needed to be fixed as quickly as possible, but for now it was unlikely it would need to be put into a special administration regime, essentially temporary nationalisation. The company is in the midst of a turnaround plan, but funding the upgrades it needs is complicated by its 14 billion pounds of debt.

Last year it asked shareholders for an extra 1 billion pounds to fund the turnaround, but is set to receive just 750 million pounds under a deal agreed with investors on Monday. Thames Water's joint interim CEO Alastair Cochran - who, along with fellow joint interim CEO Cathryn Ross and Chairman Adrian Montague, was appointed only in June - said that did not reflect an unwillingness to invest.

"It reflects the phasing of when the company needs the money," he said. "Practically, we cannot spend efficiently any more than 750 million pounds in this price-control period." Over the next period, 2025-2030, Thames Water has said it will need an additional 2.5 billion pounds of equity, and Cochran said it was positive that the investors had acknowledged "a bigger commitment in aggregate".

Ontario Municipal Employees Retirement System, the UK's Universities Superannuation Scheme and China Investment Corp are all shareholders in Thames Water. "We have very patient shareholders and they have been incredibly supportive of this business," Cochran told the committee.

($1 = 0.7733 pounds)

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